Judging Third-Party Funding

Third-party funding is an arrangement whereby an outside entity finances the legal representation of a party involved in litigation or arbitration. The outside entity – called a “third-party funder” – could be a bank, hedge fund, insurance company, or some other entity or individual that finances the party\u27s legal representation in return for a profit. Third-party funding is a controversial, dynamic, and evolving phenomenon. The practice has attracted both national headlines and the recent attention of the Advisory Committee on the Federal Rules of Civil Procedure. The Advisory Committee recently declared that “judges currently have the power to obtain information about third-party funding when it is relevant in a particular case,” but the Committee did not provide any additional guidance regarding how to determine the relevance of third-party funding, what information to obtain, or from whom to obtain that information. This Article provides that needed guidance. This Article sets forth reinterpretations of procedural rules to provide judges and arbitrators with disclosure requirements and a framework for handling known issues as they arise. By interpreting the existing rules as suggested in this Article, judges and arbitrators will be able to gain a better sense of the prevalence, structures, and impact of third-party funding and its effects (if any) on dispute resolution procedures. Over time, these observations will reveal the true systemic impact of third-party funding and contribute to developing robust third-party funding regulations